The importance of digital transformation to the supply chain

By Oliver Chapman, CEO of supply chain specialist OCI says that digital transformation and digital acceleration of the supply chain are vital to tackle the economic crisis.

Not so long ago, the supply chain was taken for granted; it was understood that it was important but was hardly the focus of policy makers, media or even senior management in most companies. It is not like that now; the supply chain has been catapulted onto the front pages, and a cost of living crisis caused primarily by supply chain challenges threatens to push much of the global economy into recession. What’s the answer? Digital transformation of the supply chain is at least part of the solution.

Unfortunately, we can’t fix the supply chain crisis overnight; just as it takes time for a cargo ship to turn around, changing a supply chain as it currently stands is a lengthy process. But this must change. We partner with organisations in helping them to enhance their supply chain, and agile thinking is one key part of this process. The supply chain must be agile, a key lesson of the 2022 economic crisis.

Starting point and digital acceleration of the supply chain audit

The starting point of any attempt to improve a supply chain is the supply chain audit — understanding, vetting and risk assessing each stage in the process of taking the components that make up a product and turning them into the finished article, which is then delivered to the customer.

Digital transformation is a vital component in the supply chain audit. Digital technologies, including the internet of things, can be applied in tracking the interweaving parts which make up the complex web which is the supply chain.

The supply chain audit must include detailed due diligence of each supplier in the chain, but the process is complicated; data and AI applied to analyse that data are vital.

Resilience of the supply chain

When we talk about the importance of supply chain resilience, we often draw a comparison with a data centre. A data centre must have sufficient resilience and latency built into it so that it can retain operation even under extreme circumstances. The supply chain must be similarly configured. For example, just-in-time delivery created huge efficiency but also introduced vulnerability — one tiny glitch in the process and the entire supply chain was halted. We are not arguing against just-in-time, but there needs to be nuance built into how this is interpreted. The supply chain must have sufficient flexibility such that a few delays with the supply of certain components do not throw the metaphorical spanner in the works. Digital transformation is vital in creating a detailed understanding and building the necessary flexibility into the supply chain such that it is not overly reliant on a handful of suppliers.

Geographical risk

The Ukraine crisis highlighted an important supply chain consideration — geographical risk. For multiple reasons, reliance on a specific region introduces risk. The risk might be political or related to external factors such as extreme weather or earthquakes.

Digital technologies can not solve geographic risks, but the insight that the data they produce can create a greater understanding of risks and potential solutions — the digital transformation of the supply chain is vital.

Agility built into a supply chain

Digital transformation practices must be used to help embed agile thinking into the supply chain’s management. The supply chain must be configured such that it is not overly reliant on a small number of suppliers or a region, with individual suppliers able to ramp up supply when required.

Supply chain agility is vital in an era in which we have learned that over-reliance on certain suppliers can create massive challenges when things go wrong.

The supply chain must be sufficiently agile to be able to respond to crises — and digital transformation of supply chain management is a vital part of creating the necessary agility.

Can’t control it all

The supply chain consists of multiple moving parts. An individual organisation can not apply digital transformation to the entire process, but it can determine the suppliers it works with. Ensuring digital transformation is embedded into how you manage your supply chain is one thing, but equally important is ensuring key suppliers are just as adept in applying digital transformation technologies in managing the supply chain.

With the supply chain, potential problems can emerge not because of an issue with a supplier but an issue, for example, with a supplier’s supplier’s supplier. An organisation can choose trading partners with sufficient digital acceleration capability to ensure its reliability, but then such partners must ensure the same practices are applied with their partners operating further down the chain. Digital transformation of the entire supply chain can not be controlled by one organisation, but it can fashion a supply chain meeting its needs consisting of suppliers who themselves have applied sufficient digital transformation.

Opportunity

But digital transformation of the supply chain isn’t just about managing risk and limiting potential exposure to a crisis somewhere in the world; it can also create opportunities.

The insights that digital transformation brings can highlight opportunities and new innovative ways of enhancing the supply chain.

Digital transformation of the supply chain can hand individual companies massive advantages over competitors.

A company’s long-term viability hinges on the supply chain. Digital transformation and digital acceleration of the supply chain is not a nice to have; it is vital.

Oliver Chapman is the CEO of OCI. OCI is the world’s first in commercial process outsourcing. It redesigns supply chains for organisations to drive growth. The company harnesses technology and commercial process solutions to free working capital from supply chains. OCI is the No.1, fastest growing company in the UK according to the FT 1000: the sixth annual list of Europe’s fastest-growing companies – via @FT